Frequently Asked Questions: Stop Loss Insurance
What is Stop-Loss (Excess) Insurance?
Stop-loss insurance is a product that provides protection against catastrophic or unpredictable losses. It is purchased by organisations who do not want to assume 100% of the liability for losses arising from the plans. Under a stop-loss policy, the (re)insurance company becomes liable for losses that exceed certain limits called deductibles.
What is Protected Self-Insurance?
Protected Self-Insurance program is an alternative risk financing mechanism in which an organisation retains and handles the manageable, predictable risk within its operations, and transfers the catastrophic risk with specific and aggregate limits so the maximum total cost of the program is known. A properly designed and underwritten Protected Self Insurance Program provides valuable risk management knowledge and aids to reduce and stabilize the cost of insurance.
What is Aggregate Stop-Loss (Re)Reinsurance?
A form of excess of loss (re)insurance which indemnifies the (re)insured against the amount by which the (re)insured's losses incurred (net after specific reinsurance recoveries) during a specific period (usually twelve months) exceed either an agreed amount or an agreed percentage of some other business measure, such as aggregate net premiums over the same period or average insurance in force for the same period. This form of (re)insurance is also known as stop-loss (re)insurance, stop-loss-ratio (re)insurance, or excess of loss ratio (re)insurance.
What is Specific Stop-Loss Insurance?
Specific Stop-Loss is the form of excess risk coverage that provides protection for the organisation against higher then expected claims. This is protection against abnormal severity of a single claim rather than abnormal frequency of claims in total. Specific stop-loss is also known as individual stop-loss.
What is Aggregate Stop-Loss Insurance?
Aggregate Stop-Loss provides a ceiling on the amount of eligible expenses that an organisation would pay, in total, during a contract period. The (re)insurer reimburses the organisation after the end of the contract period for aggregate claims.
What does Retrocession mean?
Reinsurers typically purchase reinsurance to cover their own risk exposure or to increase their capacity. Reinsurance of a reinsurer's business is called a retrocession. Reinsurance companies cede risks under retrocessional agreements to other reinsurers, known as retrocessionaires, for reasons similar to those that cause primary insurers to purchase reinsurance: to reduce net liability on individual risks, protect against catastrophic losses and obtain additional underwriting capacity.
